Analysis: Changes in retirement starting to be felt

A month after pension reform into effect, public employees hired after Jan. 1 may find their retirement prospects less rosy than those that came before them.On Jan. 1, the Public Employees’ Pension Reform Act shifted the landscape of qualifications for public employees, from those who paid into California Public Employees Retiree System (CalPERS) to California State Teachers’ Retirement System (CalSTRS).Cities like San Jose and San Diego, which have their own pension plans, remain unaffected.Cities like Ridgecrest, however, that use CalPERS, will have to adhere to new rules.Normal retirement ages rose from 60 to 62 with 2 percent of pay for non-public safety employees, a new retirement formula created, and the maximum payout capped. Prior to 2010, the normal retirement age was 55.Early retirement age was set at a minimum of 52 at 1 percent of pay.Classic members — those who are grandfathered into the pre-2010 system — would not be affected, unless they switched employers from one public agency to another.Public safety officials — like police officers hired after Jan. 1, 2013, will now have to retire at 57 for full pension benefits, up from 55. Early retirement age is set at 50 at 2 percent of pay after 20 years of service.Within CalPERS, this means the reform act caps salary amounts used to calculate final payouts at $110,100 and $132,100 for those participating in Social Security.Reformed pension laws also require all new employees hired after Jan 1. 2013 to foot the bill for half their retirement cost.Under the new rules and formulas, someone who retired at 62 receive 2 percent of their salary on a calculation of 20 years of hard work. If a person retired with a salary of $50,000, the retiree would take home $20,000 a year in retirement.If a person feels the need to put in for retirement at the tender ager of 52 after 20 years of service, they receive a $12,500 a year in their retirement. If a police officer or firefighter hired under the new rules were to retire at 50 after 20 years of service and earning $80,000, he would earn 2 percent, or $32,000. This is down prior to before the reform, when officers could retire at 50 after 20 years of service with 3 percent, or $48,000.Newly hired teachers under the CalSTRS program will also be required to pay 50 percent of their retirement costs.The move would save CalPERS, the nation’s largest public pension system, up to $50 billion over 30 years. For CalSTRS, the nation’s second largest pension fund, projected savings are in the ballpark of $23 billion.The state estimates all of its pension funds will fall short by $120 billion over 30 years, effectively putting it at only 70 percent funded for all employees who paid, are paying or will pay into their retirement.Private analysts project a much less rosy picture, painting unfunded obligations as much as $500 billion over 30 years, making savings garnered from the pension reform a drop in the bucket.In its cautiously optimistic review of Gov. Brown’s proposed 2013-14 budget, the California non-partisan Legislative Analyst Office chided the governor’s failure to fully address the state’s burgeoning pension reform.“It builds up very little reserves in that time period and it does nothing regarding our various retirement obligations,” analyst Mac Taylor said during a Jan. 15 press conference addressing Brown’s proposed budget.The LAO’s analysis was just as critical, stating the proposal “would not have begun addressing huge unfunded liabilities associated with the teachers’ retirement system and state retiree health benefits.”